Retiree Proposes Own Social Security Plan

March 23, 1999

Frank Thames, a retired executive living in Fullerton, Calif., has come up with his own proposal to gradually phase in a fully privatized Social Security system by 2050.

He suggests that everyone contribute up to $100 a month into a privately selected, privately managed retirement account -- which, in itself, would amount to a $1,200 annual tax cut. Given that 136 million Americans work, the boost to markets and the economy would amount to $163 billion a year.

Current Social Security beneficiaries would continue to receive their payments. The earlier a worker made the transition into this plan, the more he would benefit -- meaning that someone age 25 would see greater results than a worker age 45. Those currently between age 30 and retirement would collect a combination of a reduced Social Security payment at retirement and a 5 percent annual withdrawal of their total interest-accrued funds.

Assuming an 8 percent real annual return and an average monthly Social Security benefit of $1,100, here's what the payout would be.

Someone age 25 now would have invested $48,000 by retirement, amounting to a fund of $326,800 -- which would pay out $1,350 a month, with no Social Security payment.

A current 35-year-old would have invested $36,000, for an account worth $152,000 in 30 years -- paying out $630 a month, supplemented by $370 in Social Security payments.

Today's 45-year-old would invest $24,000, the value of which would have risen to $65,000 in 20 years -- for a monthly check of $270, supplemented by Social Security payments of $730.

Source: Editorial, "Voices From Outside the Beltway," Investor's Business Daily, March 23, 1999.